Today's Sacramento Bee, the Sacramento region's major daily newspaper, has a similar story on the Sacramento area grocery retailing environment. The article in the paper's business section reports on a new study just released by the market research firm Trade Dimensions, Inc. which details the last six months of grocery retailing competitive activity in the Sacramento market.

Wal-Mart on a roll

Trade Dimensions' reports that the biggest gainer in the Sacramento region grocery retailing market is that brawny big-box bully from Bentonville, Wal-Mart, Inc. Wal-Mart, which only recently began opening its combined food and general merchandise Supercenters in the region, increased its share of the Sacramento-area market to 7.1%, from a meger 2.3 percentage points just a year earlier.

Wal-Mart has opened four new Supercenters in the market region in the last two years, and has plans to open two more soon. Wal-Mart has a number of its standard Wal-Mart discount stores in the region which sell a limited assortment of grocery products. However, Trade Dimensions, Inc.--like all retail grocery market research firms and analysts--only counts the retailer's Supercenters in terms of calculating market share numbers, since they are the format that offers a full-line supermarket inside the stores. Wal-Mart doesn't have any of its smaller, 45,000 square foot Wal-Mart Neighborhood Markets in the Sacramento area to date.

For retail grocery sales market share assessment purposes, the Sacramento market is defined as the following counties in the region: Sacramento, El Dorado, Nevada, Placer, Sutter, Yolo and Yuba counties in California, and Douglas County, which includes Carson City, Nevada in Northern Nevada. It's a population of over 2 million people.

Sacramento region market share leaders

Rounding out the retail grocery sales market share picture in the Sacramento market region, according to the Trade Dimensions' report are:

>Raley's. Raley's, which is based in Sacramento, operates 129 supermarkets under the banners Raley's Superstores, Bel-Air Markets and Nob Hill Foods. The chain also operates a fourth banner, Food Source, which is a discount warehouse store format. As we reported on February 28, Raley's is far-and-away the market share leader in the Sacramento region, with a 34.2% share of the market, according to Trade Dimensions.

>Safeway Stores, Inc. Safeway, the third biggest grocery chain in the U.S., has a 21.3% share of the Sacramento grocery market, according to the Trade Dimension's report. Safeway has its corporate headquarters in Pleasanton, California (Bay Area), which is about 70 miles from Sacramento. Safeway is the market share leader in Northern California, which includes the San Francisco Bay Area, along with the Sacramento area, and the other regions which comprise the northern-half of the golden state.

>Save Mart. Save Mart, which is a privately-held supermarket chain with its corporate headquarters in Modesto, California, which is about 60 miles from Sacramento in the Central Valley, has an 11.4% share of the region's grocery retail market. Save Mart's share of the area market dropped about 1.4% this year over last year, according to the report.

However, this is nothing to worry about for Save Mart. Three years ago it wasn't even a minimal player in the Sacramento region market. In 2006 it acquired Albertsons, Inc.'s Northern California division, which not only doubled the number of stores the grocer has, but doubled it annual sales from about $3 billion to a current $6.5 billion. The acquisition also put Save Mart into the Sacramento market for essentially its first time.

The 1.4% drop in market share is do to the fact Save Mart closed a couple of the older Albertsons' stores in the region, in addition to the fact it has had to remodel a number of the stores, and convert all of them to its Save Mart banner. We actually expect to see Save Mart's market share numbers increase by a few percentage points in 2008 because it's nearly done converting all of the area stores.

The Save Mart brand name is strong throughout the Central Valley, including in the Sacramento region. Additionally, the grocer is a value-based food retailer and promotes heavily. Additionally, the Sacramento area, like most of California, is currently experiencing bad economic times. This is a climate Save Mart has historically done very well in, compared to other grocery retailers.

Other key players in the region

Other players in the Sacramento Market, but not included in the Trade Dimensions' report, include Food-4-Less, a small chain of price-impact warehouse format big-box stores, Nugget Markets (which also owns the Food-4-Less chain), a multi-store locally-based independent which operates upscale supermarkets that feature basic grocery products, along with lots of specialty, natural and organic product offerings department-wide, Trader Joe's, which has a handful of stores in the region, and Whole Foods Market, Inc. Whole Foods currently has only one store in the market region, in Sacramento. However, the supernatural grocer is looking to open at least two more stores in the area in the near future.

Nugget Markets, which is based just outside Sacramento in Woodland, has been named one of the three best independent grocers in America by the supermarket trade publication Progressive Grocer. Additionally, the grocery retailer was named this year (and for the last three years) as one of the 100 best companies to work for (number 12 out of 100) in the U.S. by Fortune magazine in its annual "best companies to work for in the USA" survey.

Nugget Markets is growing rapidly and opening new stores in the region. The local grocer currently has eight of its upscale stores in the Sacramento area, with more on the way. While the Nugget stores are upscale in design and product selection, the grocer also puts a low-price emphasis on its everyday grocery product selections.

In fact, Nugget offers shoppers what it calls its "Price Challenge." The food retailer invites any customer to purchase $100 worth of groceries at a competitor's supermarket. The shopper can then bring the $100 grocery purchase into a Nugget grocery store, and a clerk will scan the items at a register. If the Nugget total is higher than the total on the receipt from the store where the customer bought the $100 worth of items, Nugget Markets will give the shopper double the price difference, plus an extra $10.

All of the Nugget grocery markets have a "scorecard" on the wall above the front entrance which shows how many shoppers have taken the "Price Challenge," along with how Nugget measures up on the challenge with the competition. Note: they win the majority of the time.

Drug chains Long's and Walgreen's operate numerous drug stores in the Sacramento area. The stores--Long's more so than Walgreen's--sell limited-assortments of packaged groceries, lots of beverage products, and fresh dairy and frozen foods' products in their stores at discount prices. There also are a number of long-established independent grocers in the market region--such as upscale Corte Brothers Markets--which have their own local niches.

Wal-Mart the big growth factor in region

The big factor in the market however is Wal-Mart. With only a handful of Supercenters in the region, it's already controlling over 7% of the grocery dollar market share. When it opens its two newest Supercenters, that percentage should increase by at least two points based on the sheer volume the mega-stores do. We also know Wal-Mart has plans for more Supercenters in the market, if it can get them approved and built.

Wal-Mart hasn't even started to scratch the surface in terms of the number of Supercenters it wants to build and open in the market. It's biggest onstacle to doing so is that it faces opposition by cities and organized groups each time it proposes a new big-box store in the market. In fact, many cities in the area have enacted "big-box store" ordinances specifically designed to keep a Wal-Mart Supercenter out of their communities.

The Tesco Fresh & Easy factor

Tesco's Fresh & Easy Neighborhood Market, with an initial 19 stores in the region, is likely to inject additional competition into this already competitive market. However, one has to put the chain's entrance into the market in perspective relative to Wal-Mart. Fresh & Easy grocery markets average about 10,000 -to- 13,000 square feet. In other words, the 19 new Tesco Fresh & Easy stores in the region will add about 209,000 square feet of new retail grocery sales square footage to the market.

In contrast, Wal-Mart's Supercenters average about 215,000 square feet. About 40% of that square footage, or about 100,000 square feet is dedicated to merchandising food and grocery-oriented products. That means the two new Wal-Mart Supercenters set to open later this year in the Sacramento market will have roughly the same amount of overall square footage devoted to selling groceries as all 19 of the Fresh & Easy grocery markets will have.

Of course, total square footage is only one measure. The goal of Tesco with the Fresh & Easy stores is to locate in neighborhoods throughout a region, creating a "critical mass" of stores that will hopefully serve as the primary and secondary neighborhood grocer for the residents of those neighborhoods. In contrast, Wal-Mart Supercenters are generally located outside of residential neighborhoods, and require residents to drive a distance to shop at them.

Raley's won't just observe the new competition

Of course, local guy Raley's has for decades had the role of the Neighborhood grocer--even though its stores range from about 45,000 square feet -to- as big as 75,000 square feet. But in Raley's case, size doesn't matter. It is the local brand. [Read more about Raley's as the local brand in our piece here.] Trying to convert Raley's primary customers to a Wal-Mart Supercenter or a Fresh & Easy Neighborhood Market is no easy task in the Sacramento region. And, the locally-based chain isn't about to sit still and let it happen either. It's an innovator, and is planning some new innovations to meet all its new competition.

For example, Raley's recently introduced a service into some of its stores in which a shopper can place their grocery order online via Raley's website. The store then picks the customer's order, which the shopper pre-pays online using his or her credit card. When the customer arrives at the Raley's store, a clerk brings the grocery order out to the shoppers car, so she doesn't even have to go into the store to get her groceries.

Raley's also is very customer service oriented, a feature most Sacramento shoppers seem to like. Store clerks offer to carry every grocery purchase out to a shoppers car, for example. Additionally, the chain has a policy in which is will special order any item a customer wants for them, even if they don't carry it in any of their stores.

The West Sacramento-based grocery chain also is a long-time leader--not just in Sacramento but nationally in the U.S.--in natural, organic and prepared foods merchandising. Most of its stores have large, store-within-a-store natural products' departments, which are staffed with clerks who assist shoppers with any questions they might have. The departments carry an extensive selection of natural, organic and healthy foods across all dry grocery, beverage and perishable foods categories.

Raley's also is respected for its position on food safety, which leads to strong fresh produce and meat sales. It is one of the only supermarket chains in the U.S. which has all of its fresh produce inspected by a third-part professional company, which tests the produce items and certifies them as having either low or zero-detectable levels of pesticide residue. Raley's started this program after the infamous Alar chemical in apples scare in the U.S. in the 1980's, and has continued and even expanded the third-party testing program today.

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